A Markov Switching Cookbook

Bruce Mizrach and James Watkins
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James Watkins: American Express Corporation

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: This paper examines maximum likelihood estimation via hill climbing and the expectations maximization (EM) algorithm in the context of Hamilton's Markov switching framework. The techniques are explained in detail and are followed by a discussion of both analytic and computational issues. Both algorithms tend to be computer intensive, but an approximation technique is shown to significantly reduce the computational demands of the EM algorithm relative to a Davidon Fletcher Powell hill-climbing routine.

Keywords: EM algorithm; Markov switching (search for similar items in EconPapers)
JEL-codes: C22 (search for similar items in EconPapers)
Date: 1998-08-07
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Published in Philip Rothman (ed.), Nonlinear Time Series Analysis of Economics and Financial Data, Dordrecht: Kluwer, 1999, 33-43.

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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:199817

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